MARKET HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
“It was one of those March days when the sun shines hot and the wind blows cold: when it is summer in the light, and winter in the shade” -Charles Dickens
In a typical year, tallying up the days from January to December in a calendar would sum up to 365 days. However, about every four years, February extends to 29 days instead of the usual 28. According to NASA, the Earth requires approximately 365.242 days to complete one orbit around the sun. It’s important to note the .242 part, an extra quarter of a day, around six hours each year, but for the sake of simplicity, this fractional day is conventionally rounded down to 365 days.
Those leftover six hours might not seem like a lot, but after four years, they pile up to a whole extra day, 24 hours! This accumulation prompts compensating for the surplus day to ensure chronological accuracy. Neglecting this adjustment could lead to a shift in seasons. Following 2024, February will have 29 days in 2028 and 2032.
To learn more about why leap year, visit NASA- Doing the Math on Why We Have Leap Day.
By: Chief Investment Officer, William Henderson
The shortened President’s Day Holiday week, with few economic news releases, allowed for one story to dominate the news and, therefore, market returns for the week. That story was AI (Artificial Intelligence) chip maker Nvidia’s (NVDA) 4th quarter EPS release, which showed the “Magnificent 7” member besting Wall Street analysts’ expectations for revenues and earnings. NVDA stock increased by +8.5%, adding $277 billion in market cap and notching a one-day Wall Street record. All major market indexes followed suit and ended the week higher: Dow Jones Industrial Average +0.9%, the S&P 500 Index +1.2%, and the NASDAQ +0.6%. An area of weakness in the stock market continues to be small capitalization stocks, which continue to lag the overall market. Fixed-income markets continue to push off any thoughts of rate cuts by the Federal Reserve before the second half of 2024. The 10-year U.S. Treasury bond yield fell four basis points to close the week at 4.26%.
U.S. Economy
It was a quiet week for economic releases. This week, we get the revised 4th quarter US GDP (Gross Domestic Product), which will be closely watched for upward revisions from the current +3.3%. Further, the February 2024 Index for Consumer Sentiment will be released, and the question will be whether consumer confidence moves higher yet again. Minutes from the January 2024 FOMC (Federal Open Market Committee) meeting confirmed what we have been saying for quite some time, that interest rate policy will remain data-dependent. Policymakers further stated that they continue to see risks of continued price stability.
Policy and Politics
Of course, 2024 is a US presidential election year, and Saturday showed former President Trump beating former South Carolina Governor Nikki Haley in the South Carolina GOP primary. While the race for the GOP candidate is not over, it is getting narrowed down, but we will know who the GOP candidate is on Super Tuesday (March 5).
Globally, politics and policy remain troubled as there is no end in sight for either Ukraine/Russia or Israel/Hamas.
What to Watch This Week
Anytime a single stock’s action moves the markets, such as Nvidia did last week, we realize how thin the markets are and how starved for news and events Wall Street traders are. Certainly, the NVDA news was big, and adding a $277 billion market cap was a new record, but shouldn’t the real story be the economy? The U.S. economy continues to confound all the experts as it grows and adds employees each week. After 90% of S&P 500 companies have reported 4th quarter earnings, we see a healthy 7.5% earnings growth. We will be intrigued this week as new 4th Q GDP data and the important measure of consumer confidence will be released. Market focus will soon move to the March FOMC meeting and whether there will be any change in monetary policy. Reach out to your advisor at Valley National Financial Advisors for help or questions.
Tune in Wednesday, 6 PM, “Your Financial Choices” on WDIY 88.1 FM. Laurie and her guest, Attorney Peter Iorio, from Fitzpatrick Lentz and Bubba, will be discussing: Avoiding Estate Planning Mistakes.
Questions can be submitted to yourfinancialchoices.com before the live show. Recordings of past shows are available to listen to or download at yourfinancialchoices.com and wdiy.org.
MARKET HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
“Arriving at one goal is the starting point to another.” -John Dewey
February marks National Cancer Prevention Month, providing a fantastic chance to enhance awareness and encourage proactive measures for leading happier, healthier lives. Although cancer is still a leading cause of death, it is crucial to concentrate on the actions we can adopt to avert cancer and enhance our general well-being.
Visit AACR for more information on cancer prevention.
By: Chief Investment Officer, William Henderson
Equity markets sold off, with all three major indexes posting negative returns for the week. (Dow Jones Industrial Average –0.11%, S&P 500 Index –0.42%, NASDAQ –1.34%). Meanwhile, the Russell 2000 Index of small-capitalization stocks rallied +1.17% for the week, breaking from the herd to produce a positive return. Equity markets were pushed into negative territory after releasing January’s CPI (Consumer Price Index) data, which moved higher. The modest move higher in monthly CPI data (+0.31%) reinforces our notion here on The Weekly Commentary that the Fed is data dependent and rate cuts are further off in the future because inflation is not yet tamed in Fed Chairman Jay Powell’s mind. Following the same path, fixed-income markets performed poorly last week, with the 10-year U.S. Treasury bond yield increasing by 13 basis points to 4.30%.
U.S. Economy
As mentioned above, the CPI report for the month of January showed a move higher, but the long-term story remains the same: inflation is coming down. Chart 1 below from Valley National Financial Advisors and Y Charts shows monthly and annual CPI over the past four years. The annual rate of CPI is down from the 9% level we saw in 2022, and the current rate (3.09%) is below the recent average of 4.00%. Monthly figures are more volatile than annual figures, and it is not unusual to see a move higher in monthly CPI in January as that is the month many companies push through higher prices on goods and services. We believe the Fed will not cut interest rates until the second half of 2024, and any moves in interest rates will be predicated by precise data indicating inflation is at or near the Fed’s 2.00% target rate. Equity and fixed-income markets were too quick to price in earlier rate cuts, and markets are simply repricing to reflect that rates are not coming down anytime soon.
Last week, the University of Michigan released January’s U.S. Index of Consumer Sentiment. Chart 2 below from Valley National Financial Advisors and Y Charts shows the index over the past three years. Since bottoming in July of 2022, the index has moved higher, and more specifically, the last three readings showed improvements in Consumer Sentiment. The index historically indicates increased consumer confidence in economic expansionary periods. Markets understand this, and while we saw a pullback in stocks last week, the trend remains in place – the economy is growing, consumers are spending, and companies are making money.
Policy and Politics
We are in a holiday-shortened week for Washington, with President’s Day on February 19. There are a few important economic reports this week for the same reason. Washington is content on arguing about a funding bill for Ukraine and Israel with or without money for U.S. border controls. It is certainly redundant but necessary to mention that we are in a presidential election year for the U.S. Eventually, that will take center stage in all that happens in Washington, DC.
What to Watch This Week
Summary
Equity markets were early to price in March ‘24 rate cuts, and as the data has unfolded, it is evident that the Fed is not inclined to lower interest rates until the 2.00% inflation target is hit. We are now seeing a repricing in markets to accurately reflect rates cuts much later in 2024 than March. We have said this for a while and stick to our notion of not fighting the Fed. Pushing aside any notion of interest rate cuts, we are still sitting with a growing U.S. economy, especially when compared to other developed nations, which eventually will be good news for equity markets. It is difficult to remain confident about markets when conflicting data exists, but long-term trends remain in place, and our outlook remains cautiously optimistic for 2024. Enjoy the quiet week, and reach out to your advisor at Valley National Financial Advisors for help or questions.
MARKET HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.